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How Microfinance Can Contribute to the End of Extreme Poverty

The State of the Microcredit Summit Campaign Report, released annually by the Microcredit Summit Campaign, highlights the latest data on the progress towards reaching more than 175 million of the poorest families with microfinance. This week the Gateway interviews director Larry Reed regarding findings from the recently released 2014 report, Resilience.

Gateway: The theme for this year’s Report is Resilience. Where did that theme come from?

Larry Reed: I visited the Phillippines in January to see how the microfinance community was coping with the mass destruction caused by Typhoon Yolanda which struck last October. Only 75 days after the typhoon hit, I attended a CARD Center meeting in Tacloban and found the people there rebuilding their homes and businesses, re-stocking their store inventories, selling to and buying from their neighbors, and sharing what little they have with those still in need. The people of Tacloban have shown amazing resilience in the face of unimaginable losses. I was amazed by the energy and hopefulness of people who had lost almost everything in the storm, and the role played by MFIs like CARD to provide food, medicine, insurance payments, and other financial services immediately after the storm. During the Center meeting, the CARD staff discussed a “calamity loan” they were offering to help clients rebuild and start over. The women asked lots of questions about the loan and its terms, finally deciding that it could be helpful. They only requested one change. “We think you should call it a rebuilding loan rather than a calamity loan,” they told the accounts officer. “We don’t want to be treated like victims.” With the help of NGOs, MFIs, and their community, they have found the strength to get back on their feet and start over.

Gateway: The Microcredit Summit Campaign collects data every year for the number of microfinance borrowers worldwide and the number of those that are among the poorest in their countries. Last year, the numbers showed a decrease for the first time, largely due to millions of loans written off in Andhra Pradesh, India. What did the numbers show this year?

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LR: Overall, the numbers show a rebound almost equal to the amount of the losses of clients last year, with total clients worldwide reaching 204 million. On the other hand, the total number of poorest clients (those living on less than $1.25 a day) continued to fall, from 124 million to 116 million.

Gateway: Interesting. Does that mean that microfinance is moving away from serving those living in extreme poverty?

LR: That’s what we wondered when we first looked at the numbers too. We followed up with a number of MFIs to learn more about these reductions. We found that most of the decline can be explained by MFIs making increased use in recent years of poverty measurement tools like the Progress out of Poverty Index™ (PPI™) or the Poverty Assessment Tool (PAT) in which they often found that they were overestimating their poverty outreach.

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In the long run, we believe that increased use of these tools will lead to more people in extreme poverty being reached with products and services that better meet their needs. We’ve already seen this start to happen in the Philippines, where 10 of the largest MFIs began using the PPI at the same time. The graph below shows a decline in numbers of the poorest being reached in 2011, as the reports from the PPI showed they were reaching fewer of the poorest than they had previously estimated. This led these MFIs to begin looking at what prevented people living in extreme poverty from becoming clients and to developing policies, systems, and services that could include the poorest. As a result, the numbers of poorest clients started going up again in 2012.

Gateway: Through the Microcredit Summit Campaign, the industry set a goal of helping 100 million families move themselves out of extreme poverty. With these numbers, do you think it will be possible to reach that goal?

LR: We can reach that goal but only if we expand the use of the products, services, and partnerships that reach those in extreme poverty and that facilitate their movement out of poverty. In the report we highlight some of these strategies, including:

Providing health education, financing, and products through the existing channels for delivering microfinance.

Building agricultural value chains that reach small scale producers in rural areas.

Using digital cash and banking agents to deliver financial services at much lower costs.

Combining conditional cash transfers with ultra-poor graduation programs to provide pathways out of poverty for massive numbers of people.

Through Campaign Commitments, we are building a broad coalition to advance the movement within the financial inclusion and microfinance sectors to help bring and end to extreme poverty. Since October 2013, 27 organizations, including 14 MFIs, have launched a Commitment. These Commitments will help to foster gender equality, disseminate new research on what works best for those in extreme poverty, increase access to both financial and non-financial services for a variety of client groups, and launch or grow programs providing financial education. We look forward to reaching a total of 50 Campaign Commitments by the Summit this September.

Gateway: What can we expect to see at this year’s Summit, taking place in Mexico from September 3-5?

LR: The agenda for the 17th Microcredit Summit will be driven by the theme Generation Next: Innovations in Microfinance, which is premised on the idea that the next generation could be the first to grow up without knowing extreme poverty. We can help make this happen by providing a range of tools and services to help people living in poverty address vulnerabilities, build resilience, develop capabilities, and take advantage of opportunities. The plenaries are being designed to touch on tangible ways to end extreme poverty. These plenaries include “The Next Generation of Leaders,” “Making Markets Safe for the Vulnerable,” “Ending Extreme Poverty,” Building Pathways out of Poverty,” and “Reaching the Excluded.” Speakers will include Muhammad Yunus, Glynis Rankin, Mariella Greco, Yves Moury, Mercedes de Canalda, and Shameran Abed. Participants have designed many of the workshops, which helps us ensure that they address issues practitioners are facing in the field. The Summit will highlight the innovative work of financial inclusion and microfinace to reach those living in extreme poverty and facilitate their movement out of poverty.

Join the discussion and make global partnerships by attending the 17th Microcredit Summit!Register today for the 17th Microcredit Summit in Merida, Mexico, this September 3-5! Find out what’s on the agenda:

This blog is no longer being regularly updated. If you would like to get involved in global financial inclusion actions, contact info[at]microcreditsummit.org.

DISCLAIMER The views and opinions expressed on this blog are solely those of the original authors and other contributors. These views and opinions do not necessarily represent those of the Microcredit Summit Campaign and/or any/all contributors to this site.